Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved revenue of 17.167 billion yuan, an increase of 14.23% over the previous year; realized net profit of 1,588 billion yuan, an increase of 38.61% over the previous year; deducted non-net profit of 1,529 billion yuan, an increase of 60.09% over the previous year. In Q1 2014, the company achieved revenue of 4.106 billion yuan, up 11.14% year on year and 8.34% month on month; realized net profit of 415 million yuan, up 8.25% year on year and 30.97% month on month; realized deducted non-net profit of 408 million yuan, up 21.95% year on year and 0.69% month on month.
Benefiting from the increase in overseas markets+LED boom, cost reduction and efficiency contributed to year-on-year profit growth: According to data released by Rotu Technology, the company's annual TV shipments in 2023 were about 10.5 million units, ranking third in global TV ODM factory shipments, with a year-on-year increase of 24.7%. The increase was mainly due to incremental overseas orders; benefiting from the steady recovery in LED market demand, the gross margin of the company's LED industry chain increased 4.95 pcts to 25.81% year on year. In 2023, the company's consolidated gross margin was 18.83%, +1.82pcts year on year; net margin was 9.61%, +1.84pcts year on year. The company's gross margin was 17.78% in Q1 in '24, -0.55pcts year on year, -2.80pcts; net margin was 11.05%, +0.21pcts year on year, and +3.75pcts month-on-month. In terms of expenses, the company's sales, management, R&D, and financial expenses rates in 2023 were 2.15%/1.27%/4.10%/0.37%, respectively. The year-on-year changes were -0.06/-0.21/-0.09/-0.23pcts, respectively. The results of cost reduction and efficiency were remarkable, helping the company achieve rapid year-on-year growth in net profit.
Deepen the collaborative advantages of the vertical industry chain, and the application of COB technology contributed to performance: In 2023, all links in the company's LED industry chain covered the three major application areas of lighting, backlighting, and direct display, and each link had deep multi-chain collaboration to promote the transformation of upstream, middle and downstream to high added value in various application fields. In terms of production capacity: By the end of 2023, the company produced 1.05 million GaN chips (4 inch chips); during 23 years, the company produced 50,000 GaAs chips (4 inch pieces). The expansion of LED chip production has provided the company with a driving force to increase its market share with high added value such as Mini RGB, Mini BLU, and high-end lighting. Product aspect: The company's Mini RGB chip shipments have reached 10,000 KK; the Mini LED backlight product layout is complete, with Mini LED TV backlight module customers covering leading domestic and foreign TV brand customers; high-margin high-power lighting has been mass-produced, and full-spectrum health lighting products have been shipped in batches. In addition, the company is leading the innovation of COB display technology and has an absolute market share in the COB display market; in 2023, the company's COB display application achieved revenue of 541 million yuan and net profit of 35 million yuan. As COB technology gradually matures, production capacity is released, and prices sink, COB products are expected to move from the G end to the B-end/C end, increasing the penetration rate in commercial display and home theater fields such as consumer-grade educational screens and all-in-one conference machines.
Actively developing new business growth points is expected to benefit from the AI wave: in 2023, Fengxing Online achieved revenue of 675 million yuan and net profit of 94 million yuan; Fengxing Online is positioned as a digital entertainment creation and distribution platform. Currently, it has three business segments: audiovisual platforms and terminals, content distribution of applets, and production and distribution of skits.
The company uses AI technology to continuously develop and innovate vertical applications in the creation and promotion of movies, TV dramas, and skits. Its product Orange Star has launched a variety of AI creation tools for talented users, and is an early successful practitioner of efficiently combining AI with industrial applications and achieving commercialization. In 2023, with its deep accumulation in the field of access networks and communication applications and the synergy of the Group's industrial chain, the company successfully acquired Guangdong Ruigu and the optical module team to complete the vertical integration of devices and modules in the field of optical communication. At the same time, Zhaochi Ruigu will keep up with the times, actively embrace cutting-edge technologies such as AI, cloud computing, and big data, continue to develop and innovate, improve product quality and service levels, and promote the innovation and application of optical communication technology.
Lowering profit forecasts and maintaining the “gain” rating: In 2023, thanks to the gradual recovery in the LED industry boom and the company's active layout of the LED industry chain covering the three major application areas of lighting, backlighting, and direct display, the company's product market share continued to increase. With the smooth release of the company's LED chip production capacity and the successive commissioning of new COB production lines, the company is expected to further open up profit margins in the market. Considering that the company's performance in 2023 fell short of expectations and that the LED industry is in a slow recovery phase, we lowered our profit forecast. The company's net profit for 2024-2026 is estimated to be RMB 2,123 billion, RMB 2,549 billion and RMB 2,984 billion respectively; EPS is 0.47 yuan, 0.56 yuan, 0.66 yuan, and PE is 11X, 9X, and 8X respectively.
Risk warning: risk of exchange rate fluctuations, risk of inventory price decline, production capacity release falling short of expectations, market demand falling short of expectations.